Diesel fuel on the rise

Diesel fuel on the rise

The Energy Information Administration (EIA) is predicting a steep rise in diesel fuel prices this year and next. That forecast raises concern that higher than expected fuel costs could complicate the nascent recovery ongoing in trucking

The Energy Information Administration (EIA) is predicting a steep rise in diesel fuel prices this year and next. That forecast raises concern that higher than expected fuel costs could complicate the nascent recovery ongoing in trucking.

“We are seeing expected seasonal activity in pricing; winter is the time of year when diesel prices trend higher,” Tavio Headley, an economist with the American Trucking Assns. (ATA) told FleetOwner.

“But we’re also seeing some speculative activity,” he added. “The concern is we’re seeing prices shoot up while supplies are currently high; higher than the five-year average in fact. It’s been very slow going in terms of a recovery in freight and higher fuel prices would complicate recovery efforts.”

Diesel prices have increased sharply in recent weeks, according to EIA’s numbers, moving up eight cents to $2.88 per gallon – 57 cents above prices a year ago.

Diesel prices rose in all regions of the country by at least six cents per gallon, the agency reported, with East and Gulf Coast averages shooting up a dime to $2.92 and $2.85 per gallon, respectively, and prices in New England surging by more than 13 cents to $3.07 per gallon.

The average in the Midwest and the Rocky Mountains each climbed about seven cents, settling at $2.84 and $2.81 per gallon, respectively, said EIA, with the smallest increase taking place on the West Coast, where the price rose six cents to $2.97 per gallon. In California, the average went up seven cents to $3.03 per gallon.

As a result, EIA is boosting its fuel price projections for the year. On-highway diesel fuel retail prices, which averaged $2.46 per gallon in 2009, should average $2.98 per gallon this year and $3.14 in 2011, the agency said. “The expected recovery in the consumption of diesel fuel in the U.S., as well as growth in distillate fuel usage outside the U.S., strengthens refining margins for distillate throughout the forecast period,” EIA noted.

Higher oil prices are, of course, driving diesel fuel prices higher as well. EIA expects that the price of West Texas Intermediate (WTI) crude, which averaged $62 per barrel in 2009, will average about $80 and $84 per barrel in 2010 and 2011, respectively.

EIA's forecast assumes that U.S. real gross domestic product (GDP) grows by 2% in 2010 and by 2.7% in 2011, while world oil-consumption-weighted real GDP grows by 2.5% and 3.7% in 2010 and 2011, respectively.

“We see this is as a baseline for fuel going forward – a baseline with a lot of upside risk and the potential for a spike in diesel prices,” Headley noted. “[Fuel costs] definitely bear watching by trucking companies. Although we’re seeing signs of a freight recovery, we’re not out of the woods yet, so carriers should closely monitor what’s going on in the diesel and broader energy markets.”

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